Making The Cut

Aggregate Producers, The Kansas Department Of Transportation’s “Approved List” And The Effects Of The Tenth Circuit’s Recent Decision.

By: Erik Dullea and Breyana A. Penn, Jackson Lewis P.C.

On Jan. 13, 2016, in Martin Marietta Materials, Inc. v. Kansas Department of Transportation, the United States Court of Appeals for the Tenth Circuit (the “Court”) affirmed a trial court’s dismissal of a lawsuit brought by Martin Marietta Inc. against the Kansas Department of Transportation (KDOT). Martin Marietta – one of the largest aggregate producers in the country – is a long-time supplier of limestone aggregate for public and private construction projects all over the country, including Kansas.

With 5,000+ employees working at more than 300 quarries in 28 states, Martin Marietta is well-known within the industry. Naturally, a legal dispute initiated by a highly recognized company in the aggregate industry is worth discussing, and the Court’s most recent decision against Martin Marietta is no exception.

KDOT has a duty to supervise all roads and bridges in the state, and has several performance requirements for the allowable materials used to construct Kansas roads. Aggregate for Kansas road projects must pass KDOT’s various tests and contractors working on federal and KDOT projects can only use aggregate that pass those tests. KDOT established an “approved list” which highlights quarries whose aggregate has passed KDOT’s tests.

Martin Marietta’s Ottawa and Sunflower quarries were on the “approved list” for decades, routinely supplying aggregate to KDOT projects. However, if a supplier is not on KDOT’s approved list, the supplier can still sell its aggregate product for other purposes.

The Factors

Until October 2010, if a quarry was on the “approved list,” its product had passed certain durability factors. After several years of noticing concrete deterioration (D-cracking) during freeze thaw cycles on Kansas roads, KDOT adopted a policy to remove quarries from the “approved list” if three factors were satisfied.

The factors were: (1) KDOT found D-cracking at three separate stretches of road; (2) KDOT found that the same quarry supplied the aggregate for those three roads; and (3) the road construction projects for those stretches of road had been completed less than 20 years before KDOT confirmed D-cracking was present.

One of the results when KDOT applied this policy was that Martin Marietta’s Ottawa quarry was removed from the approved list in October 2010. KDOT removed Martin Marietta’s Sunflower quarry from the list in January 2013. Martin Marietta was not the only supplier affected by KDOT’s policy – KDOT removed several other suppliers from the approved list as well. Martin Marietta requested a hearing to challenge KDOT’s decision to remove Ottawa and Sunflower quarries, but KDOT denied the requests. At that point, Martin Marietta pursued legal action against KDOT.

Martin Marietta filed suit in U.S. district court, claiming it had a property interest in being on the “approved list,” because:

The list serves as a stamp of approval in the industry.

Contractors select their suppliers from the “approved list” for private projects.

KDOT’s removal of Ottawa and Sunflower resulted in the loss of millions of dollars.

Martin Marietta claimed that KDOT had infringed on its property interest without due process of law, failed to follow the Kansas debarment procedures and defamed Martin Marietta’s reputation.

KDOT argued that Martin Marietta had not alleged a plausible property or liberty interest capable of supporting its claims. The district court agreed with KDOT and dismissed the case, concluding that being on a preapproved list did not guarantee any particular outcome whatsoever, particularly not the promise of supplying construction aggregate.

Complaint Dismissed

Martin Marietta appealed the district court’s dismissal to the Tenth Circuit. On Jan. 13, 2016, in a split decision, the Court affirmed the district court’s decision that dismissed Martin Marietta’s complaint.

The Court held that because the Ottawa and Sunflower quarries had not passed KDOT’s testing standards, neither was qualified for the “approved list,” and the failure to qualify was a prerequisite to any potential property interest Martin Marietta might have had. In short, being on the “approved list” did not guarantee Martin Marietta a right to anything per se, and the Court was not willing to intrude into KDOT’s decision-making process on procurement matters. The Court also noted that the Ottawa and Sunflower quarries could still supply aggregates to KDOT for other uses, if the aggregate met the applicable KDOT specifications.

To the aggregate industry, perhaps the most interesting part of the ruling was the Court’s determination that Martin Marietta, as an aggregate supplier, was not a contractor. This meant Martin Marietta did not have a contractual relationship with the state of Kansas. As a result, and unlike the construction contractors, Martin Marietta did not have any contractual rights under a contract with KDOT.

The Martin Marietta case involved Kansas-specific standards and requirements. Individual states have their own procurement regulations, but many highway projects involve federal funding.

As a result, suppliers must understand the applicable performance requirements – state and federal – for each project. The Martin Marietta decision shows that complying with the applicable regulatory standards can be the difference between securing new business and missing out on new business.